3 in 4 retailers eye Open Banking to speed transactions

Open Banking could enable a third of retailers to speed up transaction time under a new European directive in January. A study from Accenture found 28% of retail companies will be able to directly initiate customer bank transactions when the European Revised Payments Services Directive, known as PSD2, comes into effect in January.

Open Banking (OB) is the process in which banks’ networks are made available to non-bank third parties to let consumers transfer funds, compare products and manage their accounts outside of the banking environment. The new protocol looks set to radically change the retail sector, with retailers expecting Open Banking to drive significant in-store innovation, according to research findings.

Under this system, retailers could use APIs to reduce or eliminate card transaction fees, given there would be no need for merchant acquirers. Working directly with retailers themselves, banks would be able to offer additional services such as point-of-sales loans or identity verification using third parties.

Accenture found that a considerable three-quarters (74%) of payments executives would use OB to access customers’ financial information so they can tailor products. Around half (51%) said they would generate relevant point-of-sale offers and discounts based on consumer spending habits.

A separate study by PwC found up to 39% of bank customers would share their financial data with other banks and third parties (such as Amazon, Apple, Tesco and so on) if in return they received benefits such as an overall view of their accounts in a single app, or being able to compare tailored product offers from third parties.

Security, as always, is a divisive concern. How vulnerable the transaction is would depend on the security of the API used. However, the Competition and Markets Authority (CMA) will require banks to adhere to specific standards by January 13. In light of these measures, more than half (53%) of respondents to the Accenture study believed OB would enable their company to reduce payment fraud. Additionally, 53% would initiate payments directly with banks to negotiate better transaction fees.

As yet, some financial institutions have held back on jumping on the Open Banking bandwagon while concerns swirl around customer data privacy. Stricter data protection laws will come into force during May 2018 under the General Data Protection Regulation (GDPR). Under the new retail regulation, banks will be liable for customer data security which it opens up to third parties. The CMA reasons that APIs will give satisfactory traceability of any customer data in transactions which go awry.

One firm undeterred by the newness of OB is challenger Starling Bank, which launched its Marketplace mobile app, offering fintech products from a range of providers on September 12.

“Open Banking is an opportunity for retailers to provide a better customer experience through flexible payment initiation and faster refunds, and to increase cash flow by bypassing card networks and fees and reducing fraud and chargebacks,” said Jeremy Light, head of Accenture’s payments practice in Europe.

“Ultimately, retailers will have to determine whether they will get significant value by creating their own payment capability, such as a purchasing app combining payments and commerce, or if they are better off partnering with an intermediary that can create a universal capability connected to the banks.”